What's the worst that can happen? (And, how can we protect ourselves?)

[Karen M.]

This is a spin off of another thread where we discussed risk, risk avoidance, risk management, and getting over the fears of getting started.   

Question:  What's the worst that can happen to a real estate investor?  And, how do we protect / prevent each of the worst case scenarios? 

Brainstorm your "worsts" -- let's figure out our protections.  Thanks!   Back later to fill in. 

[Eric Fernwood]

Hello @Karen M. ,

The following is what I go through with my investor clients concerning risk management.

First, there is no way to avoid risk, you can only manage it. Everything you do has risks. While you are reading this email you could be struck by a meteor. (Note: a person was actually struck by a meteor in Sylacauga, Alabama on November 30th, 1954. She was injured but recovered. However, in 1911 a dog was killed in Egypt by a meteor. So, people and dogs are struck by meteors, but not very often.) So, you need to keep "the worst that could happen" in perspective. A lot of bad things could happen but most are unlikely so you have to consider the cost benefit. For example, I live in Las Vegas, Nevada. While there are earthquakes, I am not aware of any damage ever caused by an earth quake. Could a major earth quake happen here today? Yes. Likely? No. So I do not see the cost-benefit of earthquake insurance in Las Vegas. My point is to be reasonable and always consider the cost-benefit ratio.

I divide investor risk into a few different categories: